A UBS branch office in Zurich, Switzerland, on June 22, 2020.Arnd Wiegmann/Reuters
UBS Group Ag ADR UBS-N must improve its emergency and recovery plans following its takeover of Credit Suisse AG to ensure it can be wound down or sold without risking financial stability and taxpayer cash, Switzerland’s financial regulator said on Tuesday.
FINMA said it had suspended annual approval of UBS’s resolution plans while Switzerland’s last globally systemically important bank overhauls its approach as it integrates its former rival, which it bought last year.
“Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks,” FINMA said in a statement.
UBS’s government-orchestrated rescue of Credit Suisse shook Switzerland’s financial system to its core and threatened the country’s reputation for banking acumen and stability.
It has created an even larger business whose assets dwarf Switzerland’s annual economic output, making it even more important that plans are in place for if something goes wrong and prompting new proposals to make Swiss banking safer.
UBS said it had already begun work on further developing its existing emergency plans “in a targeted manner.”
“As FINMA confirmed in its press release, UBS meets the current requirements to be resolvable in accordance with the preferred restructuring strategy in the event of a crisis,” the bank said.
UBS shares have gained 60 per cent since the Credit Suisse deal, with investors cheering the boost to its business.
But as authorities try to live up to promises to make the system more robust, UBS faces a tougher second phase in which it must grapple with new regulations, all while undertaking a massive integration of Credit Suisse operations into its own.
FINMA noted that UBS was currently overcoming problems of harmonizing its structures and IT platforms with Credit Suisse’s through “manual data aggregation.”
Switzerland’s government this year unveiled “too big to fail” proposals aimed at making banks safer including by hiking capital requirements. UBS’s crisis planning must adapt to new upcoming rules, including too big to fail, FINMA said.
“Overall, this sounds like a complication as UBS will need to revisit and possibly redesign its resolution plan,” broker Exane said in comments to clients after FINMA’s announcement.
Describing it as a “small negative” on the path to a full merger, Exane said the bigger event would be the government’s decision, expected in 2025, on how much capital UBS must hold.
Shares in UBS fell 0.9 per cent on Tuesday, against a 0.4-per-cent drop in a European banking index.
UBS must in particular overhaul its plan for protecting the Swiss business during an emergency, FINMA said, to ensure it can continue to operate without interruption even if there were a risk of insolvency.
The Credit Suisse crisis had also highlighted problems related to the speed and extent of deposit withdrawals. Measures to generate liquidity should be “calculated even more conservatively and prepared even more comprehensively,” FINMA added.
Global “resolution” rules introduced to ensure lenders have credible plans for dealing with a collapse were thrown into doubt by Credit Suisse’s implosion, with the rescue deal underpinned by US$195-billion of central bank loans, rather than closing down the bank.
“As a global systemically important bank, UBS must be capable of being resolved at any time,” FINMA said on Tuesday.
The regulator has repeatedly called for greater powers to oversee banks, after it was accused of doing too little to prevent Credit Suisse’s collapse.